NLA reassures members over new Land Tax changes - no additional impact on landlords
The NLA has confirmed that, despite recent stories, last minute amendments to the Finance Bill at Committee Stage regarding Land Tax and CGT, WILL NOT adversely affect landlords as some fear.
When these amendments were originally tabled in the July, the NLA were of the view that, despite the poor wording, that they would not impact landlords, particularly as they were part of the anti-avoidance measures promised in the Budget.
We were particularly reassured by the then Chief Secretary to the Treasury explanation of the new clauses, particularly his comment that we highlight in bold!
“New clauses 11 to 17 will introduce the legislation announced in the 2016 Budget for a specific charge to income tax or corporation tax on profits from the disposal of land in the UK. The new clauses will ensure that offshore structures cannot be used to avoid UK tax on profits generated from dealing in or developing land in the UK.
New clauses 11, 12 and 15 will introduce new rules to ensure that profits generated by a company from dealing in or developing land in the UK will be chargeable to UK corporation tax. Those rules will apply regardless of the residence of the person carrying on the trade and regardless of whether the developer has a permanent establishment in the UK.
New clauses 13 and 14 will ensure that the profits generated by an individual from dealing in or developing land will always be chargeable to UK income tax. To prevent avoidance, the new charge will also apply where, instead of dealing in land, a developer sells shares in a company that carries on such developments. It will also apply where arrangements are put in place to split profits from development activity between the developer and related entities that could otherwise reduce chargeable allowance. In addition, the Government have strengthened long-standing rules on transactions in land to ensure that they can effectively counter abuse of the new rules.
To support those new rules, the Government are introducing an anti-avoidance rule to prevent manipulation between the policy announcement on Budget day 2016 and the introduction of the new clauses. The anti-avoidance rule is in new clause 16 for corporation tax and new clause 17 for income tax, along with other commencement and transitional rules. We have taken steps to amend our double taxation treaties; I am grateful to our partners in Guernsey, the Isle of Man and Jersey for agreeing to make changes to those treaties, taking effect from Budget day 2016.
These measures will raise £2.2 billion over the scorecard period and take effect from 5 July 2016; they will affect developers of UK property who choose to operate from somewhere other than the UK to reduce their tax bills. There will be no effect on companies, based in the UK or elsewhere, whose profits are already fully taxed in the UK.
The changes made by new clauses 11 to 17 will continue the Government’s fight against aggressive tax planning and profit shifting. They will bring the UK in line with other major economies and ensure fair treatment between UK and overseas developers.”
“This measure is targeted at those who have a property building trade; it does not impact the tax profile for investors in UK property.”
Ahead of Report Stage next week, we have now confirmed the following with the HMRC official responsible that these measures are still not designed to alter the existing tax arrangements between landlords and HMRC.
“HMRC considers that generally property investors that buy properties to let out to generate property income and some years later sell the properties will be subject to capital gains on their disposals rather than being charged to income on the disposal.
The exception, that is the reason why it says generally above, is that:
- if the investor decides to undertake development prior to sale the profit on the developed part, from the date the decision to develop for sale, will be trading income. But that would be trading income without the new legislation. Or
- if the investor sells the land in a contract with a ‘slice of the action’ clause (allowing them to benefit from changes in the future development of the property) the slice of the action profit will be taxed under the new legislation - but it was previously taxed under the transactions in land legislation.”
We will be sharing draft guidance with stakeholders shortly…
Senior Transfer Pricing and International Advisor
The NLA will continue to monitor the situation closely and ensure the Government's intention is made clear at both Report Stage next week and in the guidance.